CREDIT CONTROL CENTRE (HK) LTD. v. FAME SURE LTD.

HCA 1005/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1005 OF 1996

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J U D G M E N T

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The plaintiff was and still is the registered owner of 47 carparking spaces at 2nd Floor, Yee On Court, 79 Waterloo Road ("the parking spaces"). The defendant was and still is a real estate trading company. On 28th July 1995, the plaintiff entered into 47 formal agreements with the defendant for the sale and purchase of the parking spaces ("the agreements"). The contractual completion date for all the agreements was 15th January 1996, at 4.30 p.m. to be precise. On the appointed day at the appointed time, completion did not take place. On 16th January 1996, the plaintiff purported to forfeit deposits paid by the defendant. By the action herein, the plaintiff seeks also damages for breach of contract. The defendant also counterclaims for damages for breach of contract. Both parties aver that the other party was not ready and/or not willing to complete pursuant to the agreements.

2. All the 47 sale and purchase agreements contain the same terms and conditions except in relation to the parcel. The material terms for present purposes are in clauses 4, 5 and 6 as follow:-

"4. Vacant possession shall be given to the purchaser on completion.

5. Time shall in every respect be of the essence ....

6. The Vendor shall assign the property as beneficial owner to the Purchaser or his nominee(s) or sub-purchaser(s) free from any encumbrances."

3. The circumstances that led to the present dispute are largely incontestable. For case of reference, I set out below the facts that have been agreed or not disputed:-

(a) Before the execution of the agreements, the defendant had been informed by the plaintiff that some of the parking spaces had been rented out on monthly rental agreements. Copies of 28 rental agreements were given to the defendant in July 1995.

(b) As at 15 January 1996, 39 of the parking spaces were subject to rental agreements made between the plaintiff and various users of car parking spaces. All these agreements provide for termination by either party to the agreement by giving one month notice in advance. The plaintiff never served notice to terminate any of these rental agreements.

(c) 8 of the parking spaces were free in the sense that that they were not rented out and the plaintiff would have no difficulty in delivering vacant possession to the defendant on 15 January 1996 at any hour.

(d) The defendant knowing that at least some of the parking spaces were subject to rental agreement never raised any requisition or query through its solicitors acting in the conveyance.

(e) Solicitors for the defendant wrote to solicitors for the plaintiff on 12th January 1996 requesting postponement of completion by one month to 15th February 1996. On 15th January 1996, solicitors for the plaintiff replied in writing that the plaintiff would agree postponement on condition that an additional 10% deposit was to be paid forthwith. The 10% additional deposit was not paid.

(f) Contrary to customary conveyancing practice in Hong Kong, the defendant never caused draft assignments for the conveyance of the parking spaces to be made available to the plaintiff's solicitors for approval.

(g) On completion date at the appointed time, no person acting on behalf of the defendant attended the offices of solicitors for the plaintiff with payment and documentation for completion.

(h) The agreements between the plaintiff and the defendant had been registered with the Land Registry in time.

(i) No rental agreement for use of any of the parking spaces had been registered with the Land Registry, even if they are registrable.

4. The arguments before me ought to be set out too. They are:-

(a) The plaintiff says it was ready and willing to complete. It contends that the rental agreements relating to 39 of the parking spaces that were not terminated on completion date did not pose any difficulty for the plaintiff to deliver vacant possession. The plaintiff says that (1) any vehicle parked on any of the parking spaces could be removed at short notice, (2) the rental agreements created mere licences for the users and did not amount to encumbrances and (3) even if the rental agreements can be regarded as granting tenancy with exclusive possession to the users, those users with unregistered interests had no priority over the defendant who would therefore be free of them after completion.

(b) Moreover, according to a staff of the plaintiff, he had negotiated with all the users except one and those users agreed to vacate the parking spaces concerned when required by the plaintiff. So the plaintiff would be able to deliver vacant possession absolutely. The defendant says that the evidence is incredible.

(c) The defendant says that the plaintiff was unable to complete or unable to deliver vacant possession or unable to deliver title free from encumbrances for the simple fact that the parking spaces had subsisting rental agreements and were actually occupied by vehicles on completion date.

(d) The plaintiff contends that the defendant was neither ready nor willing to complete; specifically, the defendant did not have sufficient funds for completion and, because the market value of the parking spaces had by early 1996 fallen below the contractual price, the defendant was using an excuse to back out from an unprofitable transaction.

(e) In relation to the question of funds, the defendant called witnesses and produced documents to show that it had financial facility ready for completion on 15 January 1996. It has been canvassed on behalf of the plaintiff that such evidence does not prove financial ability on the part of the defendant, for the defendant needed approval from bankers for use of funds.

(f) In reference to not making available a draft assignment and not attending the offices of solicitors for the plaintiff with payment order for completion on 15th January 1996, a witness for the defendant stated that she had had contact with some people connected with users under the rental agreements, e.g. car jockeys who said that the rental agreements had not been terminated. In view of the rental agreements and vehicles occupying the parking spaces, the defendant decided not to proceed with completion until the plaintiff gives assurances that there would be delivery of vacant possession. However, the same witness conceded that solicitors for the defendant were not instructed to seek assurances.

(g) In relation to the question of willingness to complete, a defendant witness says that the fall in market value was not much at that time; besides the defendant could always hold the parking spaces for rental income until a suitable time for disposal. The plaintiff, on the other had, points out that since the defendant was prepared to hold the parking spaces for rental income, the fact that the parking spaces had rental agreements was not the real reason for the defendant to refuse to complete.

5. It is canvassed on behalf of the plaintiff that on full and proper analysis all factors and circumstances point to a pre-meditated plan on the part of the defendant to back out from the transaction. Mr Chain for the plaintiff suggests, however, that this case can be decided without resolving all the issues. Counsel reasoned that since the plaintiff had already contracted to deliver vacant possession free from encumbrances, no further guarantee from the plaintiff was needed. The plaintiff was entitled to use and possession of the parking spaces until the last minute. It was not open to the defendant to speculate that the plaintiff might not be able to fulfil its contractual obligations. The defendant in the circumstances must go through all the motions of getting fully ready and attend completion. The defendant having failed to do so, there must be judgment for the plaintiff.

6. I am not prepared to go all the way with Mr. Chain. There may well be cases in which it becomes clear well before completion date that the vendor cannot possibly deliver vacant possession with title free from encumbrances. In those cases, the purchaser may be justified in not going through the motions. Moreover, the concept of anticipatory breach of contract has been long established. My own experience in conveyancing work is that, to cover all eventualities, a purchaser concerned about not obtaining vacant possession or title free from encumbrances should firstly express the anxieties through solicitors by way of formal requisitions or otherwise. Then an arrangement should be made for inspection and delivery of keys or other sufficient token of vacant possession at the subject premises moments before completion. As soon as the purchaser or its representative is satisfied by actual inspection that vacant possession can be delivered, instructions to solicitors can be made over the phone to effect completion by exchange of title deeds and payment order. If site inspection moments before time for completion shows that vacant possession cannot be delivered, the purchaser would then be on very safe ground to refuse to part with the purchase money.

7. In the present case, I find that the defendant was able to complete. The defendant had sufficient funds available at its disposal to pay the balance of the purchase price. The evidence is quite clear in this regard. It is irrelevant that use of the funds needed the approval of bankers. The bankers had given approval to the defendant.

8. However, I am not satisfied on the balance of probabilities that the defendant was willing to complete. The fact that the defendant had banking facility ear-marked for payment of the balance of the purchase price can be treated as indication of willingness to complete. On the other hand, it is clear from the evidence adduced for the defendant that well before completion date the defendant had decided not to make draft assignment available and not to attend completion until the plaintiff could give assurances that vacant possession could be delivered. But no steps were taken to even solicit such assurances. I cannot believe the defendant relied on information from car jockeys to conclude that it is not obliged to complete on a multi-million dollar transaction. This is only a red herring. The true intent manifested 3 days before scheduled completion when solicitors for the defendant wrote to solicitors for the plaintiff proposing postponement of completion. It is said that this proposal was made at the behest of the plaintiff. This is incredible. If indeed the plaintiff wanted postponement, it would not have the audacity to reply through solicitors dictating terms for the postponement.

9. As for the plaintiff's ability to complete, I accept that the plaintiff would be able to have the parking spaces vacated by compulsion or persuasion on completion date for delivery of possession to the defendant. The plaintiff could have paid off the users of the parking spaces. The plaintiff could have physically removed the vehicles of the users and settle with them by way of damages. Bearing further in mind that the defendant had had the agreements registered whilst none of the rental agreements was registered, it is highly unlikely that any claim by the users under the rental agreements for pre-mature termination would affect the defendant's title or peaceful enjoyment after completion.

10. It is true that the plaintiff did not actually have the parking spaces cleared at 4.30 p.m. on 15th January 1996. At one stage, I thought this should be regarded as failure on the part of the plaintiff to be ready for completion. On this, Mr. Chain draws my attention to the case of China Trade Investment Limited v. Silverpole Limited [1995] 1 HKLR 48 where it has been held that parties to a conveyancing transaction must co-operate in the completion arrangement. Counsel says that this authority casts on the defendant a duty to warn the plaintiff a couple of hours before completion time in order to enable the plaintiff to clear the parking spaces.

11. With respect, I do not read in any part of the judgment of the Court of Appeal in China Trade Investment Limited v. Silverpole Limited that the duty to co-operate includes a duty to warn the other party that that other party is expected to fulfil its contractual obligations. On the other hand, since the defendant by its behaviour had demonstrated to the plaintiff that completion was very unlikely to take place, I hold that the plaintiff was entitled to preserve the rental agreements to mitigate its losses arising from postponement or the defendant's breach.

12. Both parties accept that the agreements should be treated separately because they had not intended them to be one transaction that make or break together. Since the plaintiff could in any event deliver vacant possession of 8 of the parking spaces not affected by any rental agreement, the plaintiff is entitled to succeed in any case on the corresponding sale and purchase agreements. As to the remaining 39 sale and purchase agreements, there cannot be any doubt that the plaintiff was willing to complete and the plaintiff was ready to do so but the defendant was unwilling so the plaintiff should succeed too and the defendant's counterclaims should fail.

13. Accordingly, there is judgment for the plaintiff with order nisi for costs and assessment of damages by a master. The defendant's counterclaims are dismissed. The order nisi will become absolute unless either party applies for variation within 28 days from the date of delivery of this judgment.

14. I take this opportunity to praise both counsel for the admirable way they have conducted their client's case thereby reducing the length of trial by half without losing focus on any pertinent issue.